A few learnings for me (from afar) from the TK Elevator financing that priced earlier this week and congratulations to all the folks involved for getting the deal across the finish line in these difficult times!
- Despite the seemingly insatiable appetite for high yielding credits, there is a point at which investors will push back on covenant deterioration (or improvements, depending on which perspective you look at it from).
- Best execution is achieved by avoiding covenant negotiations during the roadshow/syndication process and instead focusing all the talk on pricing.
- Once potential investors have the opportunity to push back on covenants during syndication, the blowback and resulting tightening of the covenant package is likely going to be broader than what could have been achieved from a sponsor’s perspective with a more balanced covenant package at the outset (i.e., going out with the kitchen sink is not a free option).
- It is hard, probably impossible, to accurately price the quality of covenants or a covenant package.
- At the end of the day, the interests of sponsors and investment banks are aligned in getting a deal done even if that means compromising on covenant flexibility.
The private equity groups behind the acquisition of Thyssenkrupp Elevators, Europe’s biggest leveraged buyout in a decade, have backed down in a stand-off with bond and loan investors, agreeing to tighten terms of the deal in lenders’ favour.